Guest article by Chris Davis
In 2018, a digital cat sold at auction for $170,000. No, that’s not a typo. A digital cat, also known as a CryptoKitty, sold for $170,000, and was paid for with the cryptocurrency Ethereum. The currency used to pay for these kitties, currently trading at ~$2,400, makes the cat now worth well over $1,000,000. You are right to laugh (or cry) at the thought that someone bought a digital cat with enough money to put two kids through Ivy league schools. With the support of blockchain technology, more marketplaces for buying and selling digital items have emerged. Since transactions are immutable, it is easy to find a definitive answer to who owns a piece of digital property. An NFT (non-fungible token) is a special type of cryptographic token that contains identifying information including ownership within their smart contract. Unlike bitcoin, where one bitcoin is the same as the next, NFTs are not mutually interchangeable and they each represent something unique. The CryptoKitty that sold for thousands technically “lives” on an NFT in the owner’s wallet. When bought, the purchaser became the indisputable and sole owner of that digital cat.
The idea of paying for a solely digital asset didn’t immediately click for me. Someone paying hundreds of thousands of dollars for a plot of land in the online game Decentraland seems ridiculous on the surface. However, we’ve actually already been primed for this narrative. I thought back to the early 2000s and massive multiplayer online role-playing games (MMORPG) like Runescape and World of Warcraft. Scarce, limited edition items that provided no value aside from in-game “status” sold on gaming forums for significant amounts of money. With public acceptance and understanding surrounding digital in-game purchases, videogames are one of the more logical points of entry into this world. However, the reach of this movement extends much further. Recently we’ve seen mainstream adoption of NFTs expanding into digital art, collectables, merchandise, and various other online markets.
Collectables have played a huge role in a public understanding of the NFT marketplace. Instead of owning a hardcopy of a rare baseball card, people are opting into owning digital versions of scarce assets. And why not? What is the intrinsic value of a hard copy Mickey Mantle baseball card anyways? Not much. However, the market value is in the millions. Some of the world’s most famous investors have already jumped on this opportunity, with Mark Cuban auctioning off a Mav Suns Game Day Experience video. Digital art sales are booming with art collectors buying rare pieces of digital art, one of the most notable being the sale of Beeple’s OCEAN FRONT to Tron founder Justin Sun for $6,000,000. This recent push towards the ownership of digital assets has provided a much-needed platform for digital artists looking to make income from their previously undervalued art.
Music industry leaders in this field such as Gramatik, Portugal the Man, Muse, DeadMau5 and King of Leon have begun breaking down the barriers of entry for artists to sell digital merch. One of the more interesting use cases came in 2017, when Gramatik made it possible for fans to purchase the intellectual property rights, revenue and royalties from his music by holding his own cryptocurrency GRMTK. In addition, Kings of Leon recently became the first band to release an album in the form of NFTs including with the purchase an enhanced media version of the cover and a limited-edition vinyl.
While it is crucial for mainstream artists to lead the way, an important question to ask is how this movement provides value for independent artists. The artists we support become a part of our identity and fans desire different ways of showing off their fandom. Until now fandom has typically been expressed through t-shirts, hoodies, beanies etc. With NFT technology, anything that you can digitize can become a piece of merch, from albums, behind the scenes footage, and video releases to Instagram filters and phone backgrounds. Merch can be bundled together to include access to Q&As, tickets to private shows, and membership to fan clubs, all of which help create a closer relationship between artist and fan. The current bottleneck in mainstream adoption by independent artists lies in the high network fees associated with minting an NFT. With the rising network demand on blockchains, minting an NFT could cost more than you could realistically sell it for. This has led to a relatively accurate narrative that NFT sales are only for the rich and unless you can sell your NFTs for a significant amount of money, you are left on the sidelines. However, new developments to reduce network fees will be implemented in the near future, opening the door for a more inclusive marketplace.
Like any other significant technological advance, the future use cases for NFTs extend beyond our imagination. With the current push away from major labels we could soon see a future where albums and songs become a common investment opportunity for fans, using smart contracts to purchase future revenue from music royalties while the artists receive upfront money that can be immediately put to work. Oracle technologies such as ChainLink make it possible to extract data from off-chain sources and execute smart contracts based on that information. If distribution companies like Distrokid or CDBaby partner with a blockchain-based music company, they could use oracles to gather streaming data and execute splits automatically, making investing in this way possible without relying on the development and mass adoption of a new blockchain streaming platform.
Despite the recent media attention, we are still in the very early stages of NFT technology. On a recent trip to the MoMA, a friend of mine joked that maybe we’d see some NFTs hanging on the walls which leads me to believe the current mainstream narrative around NFTs is still meme-ish. I believe in the coming years we will move closer towards a mainstream adoption of blockchain in general which will begin to normalize NFTs for the average consumer. In our culture, fans crave a closer connection to their favorite artists and early adopters of this technology will be rewarded with a new avenue to help foster that relationship.
Chris Davis is a Berklee graduate working as the Head of Operations & Growth at CountN, a Boston based music-tech company helping hospitality businesses book independent artists for shows. You can find him on Instagram at @capra.davis.